A firm selling three products has the following data: Unit Unit Variable
Product Sales Mix Price Cost
P 60,000 units $40 $20
Q 40,000 units 60 30
R 20,000 units 30 15
If the firm can change the sales mix from 60,000 P, 40,000 Q, and 20,000 R to 60,000 P, 20,000 Q, and 40,000 R, pre-tax income will be:

Question

Quizplus · Accepted Answer

The pre-tax income will be lower because the firm is shifting sales from product Q, which has a higher contribution margin per unit ($30), to product R, which has a lower contribution margin per unit ($15). This reduces the overall contribution margin and thus the pre-tax income.

A Firm Selling Three Products Has the Following Data: Unit